Should you buy your family farm using your SMSF?

September 12, 2017 October 22nd, 2021

Buying a rural property can be an exciting time for any family. But, whether you’re an aspiring farmer-to-be or simply adding to an existing holding, purchasing a farm is always a big decision.

It pays to get it right with how you purchase – and there are some great reasons to buy your family farm using your SMSF (Self-Managed Super Fund). But, like with all major financial decisions, these need to be balanced against the disadvantages.

These are explained below…

Pros: Why buy your family farm using your SMSF?

Most people buy a farm by borrowing money – either from the bank or a relative – or by investing their own personal funds.

With the price of rural property soring in recent years, this isn’t a simple exercise.

Using your SMSF to buy utilises the money you have in super; and you can potentially even borrow money in your SMSF to cover any shortfall that you may have.

This is now quite common for several reasons:

  1. Using your superannuation is a cost-effective strategy, especially where borrowing is used. The savings over borrowing from a bank can be significant.
  2. The SMSF owns the land and the farming business leases it back at market value. There are potential advantages to this – for instance, the SMSF is taxed at 15%.
  3. It can be an effective way to build your wealth

Buying your family farm using your SMSF: Other considerations

Firstly, note that your SMSF can own a farming property but it cannot operate a farming business.

Owning farmland may be a good way to create more wealth but the limitations of the structure need to be balanced against the benefits.

Depending on your personal circumstances, there may be some potential disadvantages that need your consideration.

In essence, there are two main methods of financing farm land through superannuation. The loan structures and arrangements are quite different so it’s important to match your objectives and circumstances to the strategy that will give you the best results.

What’s the next step?

You will need to decide on the right purchasing structure and a set of accounting records for both the business and the SMSF.

Because of the strict compliance and legal requirements around superannuation, and because each individual’s circumstances are different, it’s advisable to seek professional advice and support from a specialist financial adviser and accountant with skills in this area.

If you would like to know more about how to buy your family farm using your SMSF, call us on 6362 0988 to talk to our SMSF specialists.